What Clegg meant by 'getting tough' on bosses pay


The Deputy Prime Minister Nick Clegg says the coalition will bring forward proposals next month to limit executive pay increases.

What did the deputy prime minister mean when he told the BBC that the government is about to "get tough" on companies that award pay rises to bosses that are deemed to be excessive?

Well, Business Secretary Vince Cable's department is looking at three ideas:

  1. to make shareholder votes on remuneration packages for directors binding, rather than advisory (as is the case now);
  2. to force big companies to include an employee representative on the committee that sets directors' pay (the remuneration committee);
  3. to force companies to publish the ratio of senior directors' pay to the typical or median pay in the company, and even (perhaps) to prohibit pay rises that bust a mandated threshold for that ratio.

There's been a public consultation on all this. And decisions on what to do will be taken by Mr Cable, early in the new year.

My sense is that, left to his own devices, Mr Cable would be minded to go for the hat trick of new and significant constraints on top people's pay.

But there will be practical constraints, and he'll face counter arguments from Conservative members of the cabinet.

That said, it is highly likely that companies will be forced to publish the numerical relationship between senior directors and other staff pay.

But I would be staggered if any Tory prime minister and chancellor - even those who have repeatedly said that "we're all in this together" - would legislate a legal maximum for bosses pay.

As for the other two proposals, on giving investors the formal power to block pay awards and on forcing the remuneration committee to have a workforce rep as a voting member, goodness only knows whether they will be enacted or squished.

Those reforms would probably appeal to many, including powerful investors, though they will be hated by directors of FTSE 100 companies.

We'll learn to whom the cabinet listens.

Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 1.

    This is all meaningless window dressing, which will change nothing.

  • rate this

    Comment number 2.

    Easy to complain about, hard to legislate about.

  • rate this

    Comment number 3.

    I know there will be those saying "it's my money, how can you legislate what I can do and can't, how much I can pay my directors"...

    It's not about small private companies. Large companies clearly need to be regulated, laisez-faire it's not working.

    And don't tell me about directors migrating. Good riddance to them. Those companies will actually became more competitive with workforce motivated.

  • rate this

    Comment number 4.

    I think he SHOULD go for the hatrick. Too many of these Execs are merely extortionately paid EMPLOYEES with minimal shareholdings. Directors with lots of shares can take income as dividends from profits, which they are entitled to do having invested their own money in the business in the first place. There are too many of these 'fake' directors in our Plc's who need to be controlled or jailed...

  • rate this

    Comment number 5.

    The Blair style hand movements are intended to show honesty and purpose, a man of action. They look rather staged these days. It's rather odd to hear someone in the current cabinet criticising an 'old boys' network. I can't see this working - it's not just about salary. There are many ways of lining someone's pocket, they'll be nodded through in a different meeting where the scrutiny is absent.


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